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Grown in Africa, made in Africa

Current Affairs

Grown in Africa, made in Africa

Africa’s growth figures live up to the Africa Rising narrative, but there is still little manufacturing on the continent. What can be done to remedy this situation, thereby boosting industrialisation and employment, entering global value chains and creating value-addition to African commodities? Stephen Williams examines the issues.

For many African countries, the share of GDP taken up by manufacturing is lower than it was in the 1970s. The manufacturing sector – that did so much to drive growth in Asia – employs less than 8% of Africa’s workforce and makes up only 10% of GDP on the continent, according to one 2014 report.

In comparison to the 8% growth in the services sector from 2000-2010, manufacturing saw a rise of only 2%. African countries’ competitiveness on global markets, apart from exporting crude extractive products, is compromised by generally low productivity and a lack of technology assets.

With few exceptions, more than 80% of the continent’s labour force is employed in low-productivity traditional agriculture or informal trading in urban areas. But the situation is not entirely gloomy. African manufacturing wage costs are competitive against those in the world’s emerging economies, such as China and Brazil. It is in other areas that Africa is currently at a comparative disadvantage.

Among Africa’s disadvantages are trade infrastructure deficits, regulatory and governance constraints, and the tendency of resource-rich countries to suffer from the phenomenon known as the Dutch Disease, where overvalued exchange rates caused by resource exports undermine the competitiveness of the manufacturing sector.

But overvalued exchange rates have become less of a challenge. Several commodity-producing African states have fallen recently due to the precipitous decline currencies due to the precipitous decline in the global oil price, currently under $50/barrel, the lowest since April 2009.

So there is a good argument for Africa to focus on manufacturing in terms of adding value to agricultural products, and promoting links along the agro-value chain.

Ethiopia is developing a successful and vibrant export market based on its agricultural commodities. The country’s booming leather apparel sector in general, and shoe manufacturing in particular, are the most obvious examples of this development.

Ethiopia provides numerous benefits to investors in the sector: low wages, relative social stability, double-digit GDP growth, a government accommodating to foreign direct investment interests, not to mention the largest cattle herd in Africa, 36 million strong.

In 2012, China’s Hujian Group grabbed the opportunity, securing 138ha of land where it plans to establish its own industrial park at a cost of about $2.2bn, inviting other apparel companies to locate to the new special economic zone (SEZ). It is anticipated that 30,000 people will work in the SEZ.

However, it is not just China that has seen the attractions of manufacturing in Africa, or Ethiopia’s leather industry. The Farida Group, based in Chennai, India, has launched a tannery project in Ethiopia. The tannery will target export markets, including India, supplying finished leather, with the potential capacity to manufacture an estimated 800,000 sq. ft of leather a year.

Apparel, like shoes, is a sector which much promise for boosting Africa’s manufacturing, and for underpinning agro-processing enterprises with value-addition written into the business model.

Another apparel sub-sector with huge potential for tapping into the agricultural sector is the cotton textile industry. Currently, there are 17 textile factories in Ethiopia and 1,120 cotton farms.

The government has stated its intentions to establish a near $200m enterprise to supply inputs to the local textile manufacturers and garment industries. Some of the world’s major textile firms are turning to Africa as Asian wages and costs rise.

Ethiopia is proving irresistible with the Swedish multinational H&M setting up a manufacturing operation in the country. Part of Ethiopia’s attraction lies in its power provision, massively upgraded thanks to huge hydroelectric programmes designed to provide reliable electricity.

Jas Bedi, of the African Cotton and Textile Industries Federation, explains: “In Africa, the average spindle speed (to spin cotton) is about 10,000 rounds a minute. That same spindle in China is running at 20,000 rounds a minute. That means the Chinese or Indian spindle is producing twice as much, and as energy costs in Africa are almost twice as high as in China or India, when you calculate your costs and benefits, you are actually four times worse off: your cost is double and your production is half.”

Ethiopia has realised this problem and set about building a resilient power grid to attract textile manufacturers. The Turkish garment manufacturer Ayka, which produces textiles for the German company Tchibo amongst others, has invested $160m in Ethiopia. It currently employs around 7,000 people and soon hopes to scale the number up to 10,000 workers.

While it is true that wages in Ethiopia are much lower than in China, that is not the only reason that the country manages to attract FDI into its manufacturing sector.

As important is the government’s proactive attitude towards companies seeking to set up manufacturing facilities. The position was summed up by James D. Thompson, co-founder and director of the Wharton Social Entrepreneurship Programme in the US. “All you have to do is write the rules of the game, and manufacturers will do what they are genetically predisposed to do.

There’s a productive entrepreneurship that builds economies, but it needs rules to play by.”

Kemal Öznoyan, who manages Ayka’s overseas branches, says that textile investors like Ayka are still rare in Ethiopia and therefore enjoy a somewhat special status. “In Ethiopia, I have the prime minister’s direct telephone number. I have the numbers of all ministers,” he boasts. “So when we have some problems, I have the numbers in my mobile and can ask about the cause. In Ethiopia, we are doing it that way.”

Encouragingly, it is not just Ethiopia that has a positive attitude towards supporting manufacturing enterprise. The US company Phillips-Van Heusen, which manufactures for labels like Calvin Klein and Tommy Hilfiger, has started production in Kenya.

There are many other examples of manufacturing areas that complement the agricultural sector in Africa taking off thanks to progressive government policies.

Two years ago, Nigeria’s Minister of Agriculture and Rural Development, Akinwumi Adesina (who is being tipped as a candidate for African Development Bank president when Donald Kaberuka steps down in May) announced that Nigeria had secured a contract to supply China with 3.2m tonnes of dry cassava chips, mainly for use as animal feed.

Manufacturing involves harvesting, washing, peeling, chipping, drying, milling, pelletising and packaging the root crop. Adesina said that Nigerian farmers and manufacturers would benefit by this year by as much as $800m from the contract.

Given the precipitous fall in the oil price, to the lowest level since April 2009, it might be expected that more African oil-producing countries, and even those anticipating a windfall from recently discovered hydrocarbon reserves, will be encouraged to develop a manufacturing sector as a way of diversifying away from a reliance on this extractive commodity.

By linking manufacturing to Africa’s agricultural output, adding value to what the continent can produce holds the promise of providing significant amounts of decent, sustainable employment. There are few countries, if any, that can ignore that prospect.

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Written by Stephen Williams

Stephen Williams is a freelance journalist, based in London UK. Having worked in publishing for over 40years, he has focused on covering issues that directly affect the majority world. A specialist on Africa, his remit also includes the Middle East and North Africa region. Currently, Williams works for a number of London-based print publications including New African magazine.

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